Friday, March 23, 2007

My Comments to the PSC

March 23, 2007Ms. Arnetta McRae, ChairDelaware Public Service Commission861 Silver Lake Blvd.Dover, DE 19904Re: PSC Docket 06-241Dear Ms. McRae:I am writing in support of wind power and opposition to the expansion of fossil fuel generation in Delaware. My views are informed by my experience in government negotiating environmentally complex, capital-intensive, long-term contracts, and also by the analytical tools I gained while earning an MBA in finance.The conventional wisdom is that the public’s environmental interest is in conflict with the public’s economic interest. But my review of the record leads me to conclude that the conventional wisdom has been turned on its head in this case; burning more fossil fuels doesn’t make economic or environmental sense for Delaware. Simply put, 19th century technology is not suited to meet the environmental and economic needs of the 21st century.This shift in the conventional wisdom is evidenced by the recent $45 billion private equity deal for TXU, which includes abandoning plans to build eight coal powered generating plants in Texas. Further evidence is provided by the rising chorus of business leaders, such as Jeff Immelt, the CEO of General Electric, speaking out in support of a national policy to control carbon emissions.The redactions of the proposals make it difficult for even the most informed citizen to evaluate the options. Even so, I am convinced that a compelling argument can be made that our long term economic and environmental would not be served by building more fossil fuel plants in Delaware.NRG, which wants to expand operations at its coal powered electric plant in Sussex County, is claiming that its proposal now before you will reduce air emissions. NRG's refusal to provide meaningful projections of future emissions makes it impossible to independently evaluate the company's claims.The illustration below from NRG's redacted proposal purports to show the expected reduction in air emissions:Looking at the chart, we don't know what emissions are measured, the scale or the base year. We don't know if this chart projects emissions in the company's proposal under current law or if it shows emissions using a future carbon capture technology. We don't even know if the illustrated reductions represent the new proposal or a combination of the new generating equipment combined with controls the company has already proposed to reduce mercury emissions, as noted here in April of last year. What we do know is that NRG is the perennial number one when it comes to air emissions in Delaware. Any other conclusion, given the company's refusal to release the most elementary environmental data, is guesswork.The uncertainty extends to the economics of NRG’s proposal. While we don’t have all the data, the PSC’s consultants’ evaluation of the economics of the proposals includes these revealing scores for price stability:Bluewater 20.0NRG 0.0Conectiv 0.7In particular, NRG and Conectiv seek to place the entire economic burden of compliance with future controls on carbon emission squarely on the shoulders of consumers. Conectiv is seeking recovery of possible future carbon taxes. NRG has proposed an exception from provisions that it “absorb any additional environmental compliance costs caused by a change in law,” and its “proposed pricing for [carbon] sequestration is essentially a cost pass-through proposal that is inconsistent with the RFP requirements.”The technology of carbon sequestration is in its infancy. Perhaps the best estimate of the cost of carbon controls can be found in a study from MIT titled “The Future of Coal,” which estimates that carbon sequestration is likely to increase the cost of electricity by 27 percent and reduce effective power generation by 19 percent. (“The Future of Coal,” p. 30, http://web.mit.edu/coal/)Similar uncertainties will affect the long term cost of energy of a new natural gas facility. But apart from the cost of carbon controls, it is unrealistic to assume that the price of gas will remain stable over the next 25 years. According to the U.S Department of Energy, the wellhead price of natural gas, measured in dollars per thousand cubic feet, increased from $0.44 in 1975 to $3.68 in 2000.Given the technical and economic uncertainties of carbon controls and the likely increases in the price of fossil fuels, we are led to the surprising conclusion that wind power is the one option that offers proven technology at a predictable cost. This is why price stability is such a crucial consideration, in which we see the public’s environmental and economic aligned.The lack of meaningful price protection in the Conectiv and NRG proposals leads me to conclude that building a fossil fuel plant in Delaware is not in the public interest. If the PSC and the other agencies involved determine that Bluewater Wind’s proposal does not sufficiently meet the terms of the RFP, then my advice is to first, do no harm by not saddling consumers with the economic and environmental costs of fossil fuels.These facilities have a useful life well beyond the 25 years specified in the RFP. If our state government makes the wrong decision, we will be living with the economic and environmental consequences long after most of us have retired to the old ratepayers’ home.The conventional wisdom no longer holds. Environmental and economic considerations are not in conflict, but are aligned; the time for fossil fuel power generation in Delaware has passed.Thank you for the opportunity to offer my views on this important decision.Sincerely,Thomas Noyes